Calculating the ROI of Branding

Calculating the ROI of Branding

How to Use Brand KPIs to Strengthen Your Business Performance

The impact of a strong brand on the bottom line is well documented. A 14-year study by McKinsey & Company revealed that top-ranked brands outperformed the world market as measured by return to shareholders by 74%.

Specifically, having a high-performing brand helped companies:

  • Overcome commoditization
  • Demand a premium price
  • Shorten the sales cycle
  • Increase sales volume
  • Attract and retain top talent
  • Build authentic culture
  • Improve customer experience
  • And more

Although the business community is generally aware of the value of increasing brand equity (i.e., the measure of customers’ predisposition to choose one brand over another and/or pay more for its offerings now and in the future), the impact of any one company’s brand often goes unmeasured. Leadership and the marketing department may intuitively recognize that the brand is doing something positive for the company, but very few can pinpoint exactly what that “something” is. Even companies that are diligent about setting and tracking KPIs typically concentrate on marketing metrics, not metrics related to branding.

The problem with this approach is that marketing metrics are focused on immediate gains and don’t take into account the exponential impact a strong brand has over time. This leads to overallocation of resources toward short-term marketing tactics and underinvestment in increasing brand equity.

According to a study by Millward Brown, strong brands on average achieved triple the sales volume of weaker brands and a 13% price premium. If that doesn’t prompt prioritizing the building your company’s brand equity, what will?

What Is a “Strong” Brand and Who Decides?

A brand is “strong” when it scores high across three dimensions:

  1. The Brand Is Relevant and Resonant: It meets its stakeholders’ needs and builds an emotional connection.
  2. The Brand Is Differentiated: It’s unique, leads the way and sets itself apart from competitors.
  3. The Brand Is Memorable: It has top-of-mind awareness.

Pricing power is the result of high scores across Relevance, Differentiation and Top-of-Mind Awareness (TOMA) of a brand

Pricing power is the result of high scores across these dimensions and is a key metric in calculating branding ROI. Millward Brown also identifies three variables that influence pricing power:

  1. Brand Power: The market share a brand can amass based on customers’ predisposition to purchase from that brand over competitors.
  2. Brand Premium: The price a brand can charge based on customers’ predisposition to pay more for that brand over competitors.
  3. Brand Potential: The likelihood that a brand will grow value share in the next 12 months based solely on current customer perceptions.

The key indicator of brand potential is differentiation – how well a brand sets itself apart from competitors. In branding, it’s often said that “being different is better than being better,” and the Millward Brown breakdown of pricing power explains why that is. If a brand can create a single point of difference, customers will perceive it more positively and brand potential will rise.

Of course, while knowing what makes one brand stronger than another is important, what companies really need to learn is the strength of their brand.

Introduction to Brand KPIs

The great majority of companies continue to focus on the easier-to-measure and more immediate performance indicators that marketing metrics provide – despite the fact that these KPIs are short-term and can be misleading. However, some are starting to ask two vital questions:

  1. How do we measure the return on our investment in branding?
  2. How do we assess the power, premium and potential of our brand?

The above questions are often prompted by the desire (or the need) to rebrand and, specifically, the very costly nature of that endeavor. It makes clear business sense that if a company is going to invest the considerable time and resources that a rebrand requires and go through such a major undertaking, it should consider the ROI and get clear on how to measure it.

The following roadmap for conducting brand equity analysis breaks down brand KPIs into three categories, making the process less daunting. These categories are:

  1. Brand Behavior
  2. Brand Perception
  3. Brand Performance

Measuring Brand Behavior

Internal branding drives corporate culture and ensures business strategy is aligned with the heart and soul of the company. When brand behavior metrics are high, it’s an indication of a company’s commitment to creating the internal alignment that ensures high levels of employee engagement and brand ambassadorship.

The specific KPIs you select for this category depend largely on your goals for cultivating the desired culture and increasing employee engagement.

Do you want to:

  • Make sure employees understand the brand?
  • Examine how employees are aligned with the brand?
  • Assess internal brand leadership and/or ambassadorship?
  • Measure the level of employee engagement with the brand?

Each of these goals suggests a different set of KPIs. The next step is to determine which metrics will provide the most meaningful information for scoring your company in the brand behavior category.

These are a few examples of brand behavior KPIs that could be measured and improved in order to achieve your goals:

  • Employees’ ability to accurately articulate the company’s brand
  • Consistent evidence of values-based, on-brand behaviors
  • Employees’ active participation in content creation and social sharing
  • New hire referrals
  • Customer satisfaction/complaints

Measuring these KPIs can involve a range of techniques – from interviews and surveys to analytics to simple tracking. Once you have collected data, determine any areas that need improvement and actionable steps for improving brand behavior metrics. Develop a plan for periodic checkups for each KPI to make sure brand behavior continually improves.

Measuring Brand Perception

Although much data that determines levels of awareness can be collected internally (using analytics across digital channels, for example), measuring brand perception is typically more complex than measuring brand behavior

Brand perception metrics calculate customer awareness and sentiments toward your company’s brand. They indicate the effectiveness of your customer engagement and require more sophisticated assessment methods and tools. Brand perception KPIs fall into two categories – awareness and consideration.

1. Awareness KPIs:

  • Recognition
  • Recall
  • Traffic
  • Community size
  • Reach
  • Impressions

2. Consideration KPIs:

  • Differentiation
  • Relevance
  • Esteem
  • Perceived quality
  • Purchase intent

Although much data that determines levels of awareness can be collected internally (using analytics across digital channels, for example), measuring brand perception is typically more complex than measuring brand behavior and may require a financial investment and/or outside expertise.

Awareness KPIs

Recognition and recall can be loosely ascertained through traffic analysis (i.e., examining direct traffic and search volume over time), but they generally require more extensive research methods to ensure accuracy – specifically, customer research using interviews or surveys.

Consideration KPIs

Collecting data for measuring consideration KPIs requires much more effort. Using social listening tools enables companies to listen in on organic conversations about their brand across social media channels. This not only reveals information about customer perceptions related to consideration (such as esteem and perceived quality) but also captures awareness data by monitoring number of mentions, for example. Additionally, social listening overcomes biases inherent in interviews and surveys where the very format can influence responses.

Differentiation, relevance and purchase intent are the most complicated KPIs in the consideration category to assess. Measuring them requires accurately identifying differentiation and relevancy factors up front and correctly recognizing the strongest purchase intent signals. The best approach is to work with a market research firm skilled in brand-related testing.

Despite the complexities, analyzing consideration KPIs is a must for increasing brand equity and bringing companies closer to determining the branding ROI.

However, the real bottom line on branding ROI is uncovered in the final KPI category: brand performance.

Measuring Brand Performance

Brand performance KPIs tell the story of how customer behavior is influenced by brand perception. These KPIs look at both one-time purchase behavior and ongoing behaviors that equate to brand loyalty: repeat purchase and brand ambassadorship (referrals).

There are three types of brand performance KPIs: purchase, loyalty and financial.

1. Purchase KPIs:

  • Leads
  • Sales
  • Close ratio
  • Preference
  • Price premium

2. Loyalty KPIs:

  • Customer satisfaction
  • Repeat purchase
  • Referrals
  • Retention
  • Customer lifetime value

3. Financial KPIs:

  • Market share
  • Revenue
  • Profitability
  • Cost per acquisition
  • Brand valuation

Financial metrics, in particular, prove the ROI of a branding effort, leaving no room for debate. Seeing an increase in market share, revenue, profitability and business valuation, as well as a decrease in customer acquisition costs, sends a clear signal that a company has a strong brand.

Getting Started

The process of calculating your brand’s ROI can get complicated and overwhelming. Where do you begin and how do you navigate the process while avoiding overwhelm?

  • Prioritize: Limit your KPIs to three to six initially. Determine which metrics are most important to your brand’s performance – those that enable you to make a business decision. Keep in mind that metrics only have value if they’re actionable.
  • Benchmark: Assess the current strength of your brand against each of your chosen metrics and use this as a baseline from which to track and measure improvement.
  • Reassess: Analyze your KPIs over time using the exact same metrics and methodology you used for your initial assessment, in order to ensure statistical integrity and actionable insights. Use your baseline to see where your brand is making gains or experiencing losses.
  • Course Correct: Wherever your brand is underperforming, take measures to correct the situation. Equally, maximize your efforts in areas that are building momentum.

Once you make the commitment to assess your brand equity and the ROI of your company’s branding effort, there is no turning back. Doing so would make your initial investment essentially worthless. Brand measurement is an ongoing endeavor, and there are no real shortcuts. However, being intentional and consistent about measuring one of your most critical business assets will pay back tenfold when it comes to gaining a sustained competitive advantage.

At Substance151, we help companies develop and execute brands that result in a stronger bottom line. Contact us and let’s discuss how we can help you assess and strengthen your brand’s behavior, perception and performance.